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TMI Blog2019 (7) TMI 1701X X X X Extracts X X X X X X X X Extracts X X X X ..... 65(105)(zzzy) of the Finance Act, 1994 [The Act]. The appellant did not pay Service Tax on reimbursements such as transportation as it felt that this did not form part of the value of taxable services provided by the appellant. 3. A show cause notice dated 20 October, 2010 was, however, issued to the appellant mentioning therein that the appellant, in terms of the agreement with KPCL, while undertaking the work of washing/beneficiation of coal, was processing goods for or on behalf of the client and such the service provided by the appellant would fall under 'business auxiliary service" [BAS] and the appellant would be liable to pay Service Tax from 16 June, 2005. The appellant was, therefore, required to show cause within 30 days from the date of receipt of the notice as to why :- "(i) An amount of Rs. 7,27,31,082/- (including Education Cess and Secondary Higher Education Cess) as detailed in Annexure A attached with this demand cum show cause notice should not be demanded and recovered from them under proviso to Section 73(1) of Chapter V of Finance Act, 1994 being the Service Tax on the amounts received by them from KPCL and Cement and Steel Companies on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was engaged in the washing of coal purchased by KPCL from M/s. Singareni Collieries Company Ltd. in raw form, the Principal Commissioner observed that this activity was a service to KPCL covered under BAS since it would be an activity of 'processing of goods for or on behalf of the client' w.e.f. 16 June, 2005, but the appellant did not pay any Service Tax for this activity from 16 June, 2005 to May, 2007. The submission of the appellant that washing of coal is a part of mining process and would fall within the scope of service 'in relation to mining', which was a taxable service only from 1 June, 2007, was not accepted. The relevant portion of the order is reproduced below :- "On bare reading of aforesaid budgetary changes, it emanates that all allied activities which are used in relation to the exploration and exploitation of mineral etc. which were falling under any other taxable service prior to the introduction of the new entry before 1-6-2007 are consolidated under the new separate entity "Mining Service" and more importantly even when related services, obviously referring to the activities in relation to the exploration and exploitation of minerals, are outsourced, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India against the said judgment of the Tribunal. The Apex Court had taken up the matter for hearing on 13-5-2015 and disposed of the said Appeal by making the order in one line that "The appeal is dismissed on the ground of delay. However, the question of law is kept open." "The order of the Apex Court is a non-speaking one which can only be termed as a decision and not a judgment as has been deliberated by Board's Circular No. 494/60/99-CX, dated 12-11-1999 and 897/17/2009-CX, dated 3-9-2009 in similar cases reproduced below. Thus, it is clear that the judgment of Tribunal is not final and also not approved by the Supreme Court because it is specifically stated by the Court that the question of law is kept open." (emphasis supplied) 7. Thereafter, the Principal Commissioner referred to the Circular dated 12 November, 1999 issued by the Central Board of Excise and Customs. It is reproduced : "Circular No. 494/60/99-CX, dated 12-11-1999 [From F. No. 387/44/99-JC] Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs Subject :- Eligibility of Downtherm Heat Transfer medium & Tri-Ethylene Glycol used for cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pl. (3) SCC 451 wherein it has been held that dismissal of SLP by non-speaking order does not imply approval of the impugned judgment." The file was also placed before the Learned Attorney General for India and he observed as given below : "In my opinion, there are no grounds for review. The issue involved in CA No. 6645/99 which was dismissed by the Supreme Court by its order dated 13-5-1999, may be agitated in other cases". The above noted learned opinion of Law Ministry and the Advice of the Attorney General for India are brought to your notice so that similar other cases, if any, could be contested in future. It may be noted that mere dismissal of our CA/SLP does not mean that Supreme Court approved the impugned judgment or order of CEGAT stand merged with the order of the Apex Court and in similar other cases we can still agitate the same issue." (emphasis supplied) 8. The Principal Commissioner also referred the Circular dated 3 September, 2009 issued by the Central Board of Excise and Customs and it is as follows : "Further, in Circular No. 897/17/2009-CX, dated 3-9-2009 issued by the CBEC, New Delhi, again the same point is affirmed by the Board. The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Penalty in terms of Section 76 of the Finance Act, 1994, is imposable on them. (iv) Penalty in terms of Section 77 of the Finance Act, 1994 is imposable upon them for failure to observe the statutory responsibilities. (v) Penalty in terms of Section 78 of the Finance Act, 1994, is imposable on them. 11. Shri B.L. Narasimhan, Learned Counsel for the appellant submitted that the activities of the appellant cannot be classified under BAS prior to 1 June, 2007 as the activity, being a service in relation to mining, was made taxable only from 1 June, 2007. Thus, the confirmation of demand prior to 1 June, 2007 under BAS is liable to be set aside. Learned Counsel also submitted when a new category of service is introduced without any amendment/change in the existing entries, the service covered under such a new category cannot be taxed under any of the earlier existing categories. Learned Counsel pointed out that as the service 'in relation to mining' under Section 65(105)(zzzy) of the Act was made taxable from 1 June, 2007, the appellant has been paying Service Tax on this activity and that the Principal Commissioner was not justified in ig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of services as reimbursements do not form part of value of taxable services. 15. The first issue that needs to be decided is as to whether the activity of beneficiation of coal carried out by the appellant would fall under BAS. According to the appellant, the said activity will be covered under the scope of mining related services under Section 65(105)(zzzy) of the Act w.e.f. 1 June, 2007. The contention is that on introduction of such a service from 1 June, 2007, there was no amendment in the definition of BAS under Section 65(19) read with 65(105)(zzb) of the Act and, therefore, the activity covered under a new category of mining related services cannot be classified under the existing category of BAS prior to 1 June, 2007. 16. This issue was examined at length by a Division Bench of the Tribunal in Aryan Energy. The appellant therein was also engaged in the activity of beneficiation of coal on behalf of the KPCL. The Adjudicating Authority classified the said activity under BAS. The Division Bench of the Tribunal observed that the said activity would be covered under mining services with effect from 1 June, 2007 and Service Tax could not be levied under BAS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that production which does not amount to manufacture comes under business auxiliary service. The beneficiation of coal does not amount to production of coal because beneficiation is a process, which enhances the quality of the coal. However, in the definition of business auxiliary service, an amendment was carried out to include process also w.e.f. 16-6-2005. The appellant has made an alternative submission that if the activity carried out by them is not considered as mining activity the demand can be sustained only from 16-6-2005 to 31-8-2005 only. There are sufficient grounds to hold that the activities carried out by the appellant amounts to mining service. When such a view is taken, the appellant would not at all be liable to Service Tax for a period prior to 1-6-2007. (emphasis supplied) 17. The Division Benches of the Tribunal in Aryan Coal and Spectrum Coal took the same view after following the decision of the Tribunal in Aryan Energy. 18. In this connection it will also be pertinent to refer to the decision of the Bombay High Court in Indian National Shipowners' Association v. Union of India. - 2009 (14) S.T.R. 289 (Bom.). It was held that introduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry. (emphasis supplied) 19. Reference can also be made to the decision of the Tribunal in M/s. Malviya National Institute of Technology v. Commissioner, Service Tax, Jaipur - 2019 (6) TMI 127-CESTAT NEW DELHI = 2019 (28) G.S.T.L. 472 (Tribunal) wherein it was observed that :- 14. ------The definition of 'CE' services as it stood prior to 16 July, 2001 was not amended when a new service namely, 'STC' was inserted on 16 July, 2001. It cannot, therefore, be alleged that 'STC' service had been carved out from 'CE' Services. In fact, the definition of 'CE' services continued to remain the same, till it was amended in 2006. Thus, the Show Cause Notice proceeded on an incorrect premise that even prior to 16 July, 2001, the nature of service provided in 'STC' services was the same as 'CE' Services. 20. The same view was taken by the Tribunal in M/s. Hal Offshore Ltd. v. Commissioner of Service Tax, Delhi - 2018-TIOL-1631-CESTAT-DEL wherein it was observed that :- 9. ------The same service cannot be taxed under two di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l filed by the Department was dismissed by the Supreme Court on 13 May, 2015 on the ground of delay leaving open the question of law. The Principal Commissioner observed that the "one line" order of the Supreme Court "is a non-speaking one which can only be termed as a decision and not a judgment" and that "the judgment of the Tribunal is not final and also not approved by the Supreme Court because it is specifically stated by the Court that the question of law is kept open". 24. The Principal Commissioner further observed : "I reach at the conclusion that the ratio of the case i.e. Aryan Coal Beneficiations Pvt. Ltd. v. CST, New Delhi - 2013 (29) S.T.R. 74 (Tri. - Del.) cited by the party, in which earlier two cases were also followed need not to be taken up for any discussion in the instant case as it becomes irrelevant since the judgment of Tribunal is in jeopardy and the question of law is still open." 25. The Supreme Court had dismissed the Civil Appeal filed by the Department to assail the decision of the Tribunal in Aryan Coal. It was also observed by the Supreme Court that the question of law was kept open. The decision of the Tribunal in Aryan Coal had not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal' as it had filed an appeal before the High Court or the Supreme Court. 29. In this connection it will be appropriate to refer to the decision of the Supreme Court in Kamlakshi Finance Corporation Ltd. The Supreme Court noticed that the order passed by the Assistant Collector not only ignored the order of the Collector (Appeals) remanding the matter, but also distinguished the decision of the Tribunal by observing that the decision of the Tribunal had not been agreed to by the Department as an appeal had been filed in the Supreme Court. The assessee filed a writ petition in the Bombay High Court to challenge the said order of the Assistant Collector. The High Court not only quashed the order passed by the Assistant Collector but also directed the Department to allocate the matter to a competent officer for passing a proper order. It is against this decision of the Bombay High Court that the Union of India preferred an appeal before the Supreme Court. The Supreme Court observed as follows :- "The High Court has, in our view, rightly criticized this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Tribunal merged with the order of the Supreme Court and in similar other cases, this matter could still be agitated. 32. This Circular does not give liberty to an officer of the Department exercising quasi judicial powers to ignore the binding decisions of the Tribunal or the High Court if the Civil Appeal filed by the Department to assail the decision of the Tribunal is dismissed by the Supreme Court. The Principal Commissioner was not justified in taking shelter of this Circular to ignore the binding decisions of the Tribunal, more particularly when the writ petition filed by the Department had been dismissed by the High Court and the Civil Appeal had also been dismissed by the Supreme Court. 33. The statement in the aforesaid Circular that dismissal of a Civil Appeal by the Supreme Court does not mean that the order of Tribunal merged in the order of the Supreme Court is also not correct in view of the judgment of Supreme Court in the Kunhayammed & Ors. v. State of Kerala & Anr. - 1991 (55) E.L.T. 433 (S.C.) = 2001 (129) E.L.T. 11 (S.C.). The Supreme Court held that once a Civil Appeal is dismissed by the Supreme Court, the doctrine of merger will ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down in Kunhayammed is to be followed, it will not make any difference whether the review petition was filed before the filing of special leave petition or was filed after the dismissal of special leave petition. Such a situation is covered in para 37 of Kunhayammed case." (emphasis supplied) 34. The second circular dated 3 September, 2009 also could not have been relied upon by the Principal Commissioner in the facts and circumstances of this case, as the judgment of the High Court was delivered under the erstwhile Central Excise Rule and the matter related to the existing Rule 14 of the Cenvat Credit Rules, 2004. 35. The second issue that arises for consideration is as to whether the reimbursements received by the appellant from the customers towards transportation charges, railway freight can be included in the taxable value. The Principal Commissioner held that for the period from 1 June, 2007 to 31 March, 2009, the activity would be in relation to mining and though the appellant had deposited service tax under this category but had not included the reimbursement charges in the taxable value. It is this demand made for reimbursement amount that has been c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the High Court observed that the expenditure or cost incurred by the service provider for providing the taxable service can never be considered as the gross amount charged by the service provider "for such service" provided by him. 39. The Supreme Court noticed the various reimbursable claims which were included in the gross value. The Supreme Court noted that Rule 5 does bring within its sweep the expenses which are incurred while rendering the service and are reimbursed and, therefore, what was required to be decided was whether Section 67 of the Act permits subordinate legislation to be enacted as done by Rule 5. It needs to be noted that prior to 19 April, 2006, in the absence of a Rule, the valuation was required to be done as per the provisions of Section 67 of the Act. The Supreme Court noticed that the charging Section 66 provides that there shall be levied Service Tax @ 12% of the value of taxable services referred to in the sub-clauses of Section 65 and collected in such manner as may be prescribed. Thus, the Service Tax is on the "value of taxable services" and, therefore, it is the value of the services which are actually rendered which has to be ascertained for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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